By Chris Gillock
One of my career goals as a young commercial finance professional was to make it through my working life without taking a paycheck from GE Capital. It looks like I will achieve this goal!
GE was the “evil empire” for all of us that were forced to compete against the organization. This firm was large and (usually) in charge. I resented its strength and power. I did not want to become a cog in that particular machine. The GE Capital franchise seemed permanent and unassailable.
I am still stunned that GE is chopping up Capital into bits and going through a rapid sell-off of assets and businesses. This is creating havoc and opportunity in the commercial finance and leasing sectors. Tim Zawacki of SNL wrote an interesting summary of market reactions to GE’s “Big Shrink:”
Wednesday, November 04, 2015 4:06 PM CT
GE Capital competitors see positives in company’s ongoing transformation
By Tim Zawacki
It will likely take several years to draw conclusions about the competitive impact of the ongoing transformation of General Electric Capital Corp. on the U.S. commercial finance business, but industry executives do not appear to be losing sleep over the prospects of an evolving landscape.
GE Capital signed agreements to sell businesses and assets constituting $126 billion of General Electric Co.’s ending net investment in the financial services unit through October, according to its quarterly report on Form 10-Q filed Nov. 2. Of that amount, approximately $77 billion pertained to GE Capital’s commercial lending and leasing operations.
Deals such as the October announcement of an agreement for Wells Fargo & Co.to acquire GE Capital’s global commercial distribution finance, North American vendor finance and North American corporate finance businesses; the Augustagreement for Capital One to acquire the health care financial services business; and the September transaction whereby Bank of Montreal will acquire the U.S. and Canadian transportation finance businesses are large enough in size that they have the potential to change the competitive dynamics in the respective niches.
“Hopefully, it removes one of the biggest competitors,” CIT Group Inc. Chairman and CEO John Thain said during a Nov. 3 conference call when asked about the prospective impact of Wells Fargo’s October deal on his company’s core middle-market commercial finance business.
“We are the main competitors with Wells and GE, and now it’s just Wells,” Thain said. “We think it’s an advantage that Wells bought those businesses rather than someone else. Wells is a very good and very strong competitor, but basically, [the pending transaction] just took out one of our two main competitors in terms of the marketplace.”
Wells Fargo officials said earlier in October that they believe the commercial lending and leasing transaction represents a unique opportunity to add relationships in businesses where GE Capital was a market leader and to complement its existing capabilities in the space. The bank is also in the process of bolstering its First Union Rail business through a September agreement to acquire GE Railcar Services. The deal does not include GE Railcar Services’ owned fleet of railroad tank cars, which Berkshire Hathaway Inc.‘s Marmon Holdings Inc. is acquiring separately.
Wells Fargo said the transaction will make First Union Rail the second-largest railcar and locomotive leasing company in North America. But competitors in the business downplayed the impact of the combination, including D. Stephen Menzies, senior vice president at railcar manufacturer and lessor Trinity Industries Inc.
“GE has been a good customer of ours, and we’ve built a number of new cars for them,” he said during an Oct. 23 call, according to a transcript of his remarks. “Wells Fargo/First Union has also been a very good customer of ours, and we currently have cars in our backlog for them as well. So I don’t think it really has a material effect on our manufacturing business, and we’ve demonstrated on the leasing side that we’ve been able to compete effectively with those folks as well. So I clearly don’t have any concerns from it, and we’re just moving forward business as usual.”
The message was similar from another railcar lessor, GATX Corp.
“I don’t think it has a big effect on GATX,” Chairman, President and CEO Brian Kenney said during an Oct. 22 call, according to a transcript of his remarks. “We always compete against that fleet, and having it change hands really isn’t a competitive issue for us. Market share is really not that important of an issue in the rail leasing business as long as you are a significant player. You can do fine. I think GATX has proven that over 115 years.”
Disruption associated with the divestiture program could, in some circumstances, set the stage for competitors to generate incremental organic growth by bringing in experienced new talent.
American Capital Ltd. announced in early August that it had hired a team of investment professionals from GE Capital Healthcare Financial Services to help broaden the capabilities of American Capital Real Estate Finance Group. The team was tasked with sourcing, underwriting and managing debt and equity investments in health care real estate, primarily skilled nursing and senior housing facilities.
Marlin Business Services Corp. Executive Vice President, Chief Sales Officer and interim CEO Edward Siciliano said during a Nov. 3 call that his company has three full-time recruiters.
“We are talking to a number of GE folks that are searching for a permanent home, given the disruption there,” he said, according to a transcript of his remarks.
Siciliano also reported that Marlin had recently hired a vice president to lead a dealer-based transportation funding group in a segment of the market “just below where GE and some of the bigger guys are playing.”
He continued, “We feel like it’s a great opportunity for us, and we’re going to continue to look for opportunities like that to expand our business in the channels that makes sense for us.”
Competitors may also be keeping close watch on the valuations GE Capital’s assets are fetching in the marketplace. Among them is NewStar Financial Inc., a Boston-based provider of corporate debt financing to midsized companies.
“The Canadian Pension Plan’s acquisition of GE Antares clearly illustrates the value that institutional investors place on direct lenders with middle-market investment strategies,” NewStar Chairman, President and CEO Timothy Conway said, according to the transcript of a Nov. 4 call, in reference to a deal that closed in August. “We are one of a small [number] of nonbank lenders that dominate that space.”